Recent heavy weather hits insurance costs

Susan Smith, National Post02.18.2014

Intact Financial Corp., the country's largest provider of property and casualty policies, posted its first underwriting loss in years due to the disasters nationwide. The company has said it will see some premiums rise by as much as 20%.

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This winter's extreme weather has been wreaking havoc with the bottom line at insurance companies. The Insurance Bureau of Canada pegs claims against property and casualty providers related to catastrophic events last year at $3.2-billion nationwide, triple the annual average for the past five years.

While this number is not totally due to the weather, weather-related events account for a large and growing part of the big bills.

In the Toronto area, the main culprit is flooding.

This means that many homeowners, both those with dry basements and those with wet ones, will share the burden. Long after pipes have been repaired and soggy TV rooms refurbished, the impact of wild weather will be felt in the form of increased insurance premiums.

Aviva Canada, the country's second-largest property and casualty underwriter, said its losses were "significant" for 2013. Last summer's flooding in Toronto was the third largest insured-loss event in the history of Canada and hit the company hard. This winter's ice storm, while less costly, will generate $10-million in claims, the company estimates.

It expects to see home insurance premiums rise 5% to 10% in the city.

Intact Financial Corp., the country's largest provider of property and casualty policies, posted its first underwriting loss in years due to the disasters nationwide. The company has said it will see some premiums rise by as much as 20%. Water damage now accounts for more than half of the amount it pays out in claims.

To help customers absorb the bad news, insurance companies are offering "loss mitigation" discounts, which can serve to hold premium costs down.

Sump pumps may not be glamorous, but they play a vital role in keeping downpours at bay and basements dry. Installing the proper insulation can keep them from freezing up in the winter and battery backups can keep them running when the power goes out. Backflow valves in the drainage system is another preemptive measure homeowners can take.

In addition to breaks on insurance premiums, the City of Toronto offers subsidies of up to $3,400 per property for backflow valves, pumps and costs associated with disconnecting foundation drains from the sewer system. Tracy Laughlin, vice-president of personal lines for the Ontario and Atlantic Division of Intact Insurance, says these sorts of steps can shave 11% to 20% off the water-damage portion of an insurance premium.

"But it's not just about the insurance premium," she adds. "It's about protecting things in the basement," such as irreplaceable family photographs.

Ms. Laughlin stresses the importance of knowing exactly what's covered by a plan. Often people don't realize that sewer backup protection is not necessarily included in comprehensive or all-risk coverage, which is the kind that most people buy. While typical packages include coverage for in-house water damage, from such issues as leaky pipes or overflowing toilets, sewer backup protection is usually considered an add-on - one that would have been worth having during last summer's deluge in Toronto.

Aviva says the average sewer-backup coverage adds $73 to its typical homeowner premium of $1,053 in the GTA. It highly recommends Toronto homeowners consider the option, as well as back-up valves and sump pumps.

"There are certain areas of Toronto where the infrastructure is inadequate," says company spokesman Glenn Cooper. "The water will fall, but the question is will the sewer system be capable of moving the water?" He points out that more people now have finished basements with more to protect. Aviva's stats show that between 2002 and 2012, the average cost of water damage claims rose 117% to more than $15,500.

Mr. Cooper offers one bit of lossmitigation advice that is simple but often overlooked: Get the electronic equipment and other valuable belongings off the basement floor.

Many companies offer special packages for condo owners, who don't have to worry about basement flooding but do have levies to fix common areas, including leaky roofs and underground parking areas. Condo owners don't have to worry about being personally sued for accidents resulting from unshovelled walkways, but they do have to think about other liability issues such as water leaking from bathtubs into apartments below.

Peter Karageorgos, manager of consumer and industry relations for Ontario for the Insurance Bureau of Canada, says property and casualty premiums are likely to continue to rise. This will take the form of small but steady increases as insurers look to shore up funds for catastrophes. And larger increases will come when companies have exposure in hard-hit areas. "As Canadians, we're being exposed to more and more severe weather," he says. "Insurance companies have to look at their exposure."

A competitive market means it's good to comparison shop for the best rates, he says, but adds that changing companies can be costly. "If you've been with a company for an amount of time and haven't had any claims, it might make sense [not to] shop around because the longer you are with a company the more credits you can potentially build."

His advice is to keep in contact with your insurer, especially to advise about renovations so that you are covered for true replacement costs.

"At that annual mark, when you get your bill in the mail, rather than paying it blindly ... pick up the phone and talk to your insurance representative."

People who do that are more likely to understand their coverage and can avoid the nasty surprises that come with catastrophes. They're more likely to know the ins and outs of in-house flooding (from an overflowing bathtub), a sewer backup (from a dramatic downpour) and overland flooding (from a swollen river). And to know that the latter type of coverage is not offered in Canada because it is uneconomical for insurers to provide.

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